Monday, January 31, 2005

According to EE Times, Cypress Semiconductor Corp. is shipping some "alpha" samples of its MRAM device -- through its Silicon Magnetic Systems subsidiary.

For all you NVEC sellers (short, long and Peter), I guess the question here is whether this Cypress product incorporates NVEC's technology or whether it comes from the work Cypress took in-house after it became impatient with NVEC's progress. In this case, though, it might be a bit more clear-cut, since Cypress promised to
share its IP with NVEC.

First, a bit of background: There isn't much of a mystery surrounding Cypress CEO T.J. Rodgers. Pretty much everything about him is public – from his company (NYSE: CY) to his politics. Yes, Rodgers is the same semi CEO who has launched written and verbal attacks against everyone from a Catholic nun to Jesse Jackson. The gruff, tough boss has testified in Congress against corporate subsidies and once delivered a keynote titled "Why Silicon Valley Should Not Normalize Relations with Washington D.C." at a Cato Institute event.

And, at times for better and at times for worse, he's remained a steadfast believer and investor in MRAM-enabled memory. Even more important than a CEO of a major semiconductor getting nano religion and spreading the gospel, though, is that he's doing it for all the right reasons – it's what customers will need and demand.

First, Rodgers believes that semiconductor survivors will be the ones that offer "on-chip" solutions – everything on one chip, with fewer moving parts that can break down. Rodgers also "gets it": The future isn't only about greater speed, better memory and more sophisticated toys. It's about establishing a better human-computer interface. To do this, you need a computer that "knows" its user. To achieve that, you need better memory. It doesn't matter if it's MRAM or the St. Louis Rams. Whatever it takes to get there. (Actually, he's a Green Bay Packers fan).

Apparently, it takes a great deal of time, money and frustration. Rodgers, not a man to publicly admit defeat, has made statements indicating that MRAM is among the most-difficult of his projects of his career.

Cypress has had its own MRAM development program for years, but the public phase came in 2002, when it teamed with MRAM specialist NVE Corp. 2002 was about the time that the semiconductor market hit bottom. So, Rodgers, pragmatist and seer, looked to ride out the downturn while planning for the future. NVEC was the brain and Cypress was the brawn in this relationship, the former with the IP and the latter with the foundry in Bloomington, Minn.

Cypress invested about $6 million in NVEC in exchange for 3.4 million shares of NVE common stock, with an option to buy up to an additional two million shares. At the time, Rodgers had said the alliance would speed development of "next-generation electronic components."

Cypress and Motorola are the two main licensees for NVEC – a company that is at once seen as a memory savior and derided as overpriced and overhyped by short-sellers.

To help speed this partnership along, Cypress created Silicon Magnetic Systems Inc., led by Jeffrey K. Kaszubinski, to develop MRAM. By September 2003, Cypress decided that this MRAM partnership business just takes too long, so the company cashed in a portion of its NVEC investment. It took the money – $23.4 million – and ran it over to its own own internal MRAM program. Kaszubinski retained his seat on NVE's board and Cypress promised to honor its partnership by sharing its IP and supplying NVEC with its MRAM wafers (if and when they move beyond paper and into three dimensions).

A source told me over the weekend to expect a press release from Cypress today. Stay tuned.

Update again: First, a correction. My source had told me to expect a press release, but did not say it would be from Cypress. Separately, a Cypress spokesman writes to confirm that this quote is accurate: "We see MRAM as the answer to a critical need in semiconductor memory
applications-a single-chip, fast write, low power, fail safe,
high-reliability nonvolatile memory," commented Jeffrey K. Kaszubinski,
president and CEO of Cypress' Silicon Magnetic Systems subsidiary
company. "The technology developed by NVE Founder Dr. James Daughton
and others at NVE was important to us in reaching this milestone."

However, does "important to us" mean that NVEC's intellectual property is a component of the "alpha" samples being shipped by Cypress? Still not clear.

3 comments:

Howard...my sources tell me that Cypress will honor the agreement with NVEC, that chips are being sent, and that the NVEC-Cypress partnership is secure.(that means royalties will be paid. Take note all you short sellers! NVEC is on the SEC's list of co's that shorting may be taken away. Better cover guys, or the price is going to shoot to the moon!) The other item to watch with NVEC is whether and on what terms the NVEC license with Freescale, the Motorola spinoff, is negotiated. Baker is playing hardball with Freescale...wants a new agreement and better terms. He wouldn't do that if he had nothing in the cupboard. Looks like Freescale wants to "re-up." Even Motley Fool is hedging on this one and they have been bearish for a long time. NVEC may have the last laugh...and that's going to be terrific for the believers. A time to buy?

Do your sources have a stake in the outcome? Do they know, first-hand, that NVEC's intellectual property is a component of the chips being sent? Or are they reaching those conclusions based on suppositions?

None of my single point sources ever have a stake in the outcome. That's one of the cardinal principles of NanoClarity. Moreover, if any source does have a stake in a discussion, its self interest is considered and must be verified by at least two other independent sources.

Clearly, I've talked to the companies involved and heard their pitches ... but with a skeptic's eye. Remember, I've built three companies myself... there isn't a self promotional trick a promoting management can use that I haven't seen or used myself over my career. I begin with a "prove your point to me comprehensively and irrefutably" attitude with all entrepreneurs.

How the MRAM chips perform and what their cost in volume turns out to be is the bottom line. If they do well, it is a smarter business decision for Cypress to pay a royalty to NVEC than to try to fight claims and injunctions ad nauseum in court. My practical side says that if the chips are good, it's a partnership. If they aren't impressive, who cares which technology is involved.

So let's both watch the chip tests over the next 30 -90 days and see how many companies incorporate the MRAM chips in their new designs. The proof of the pudding is in the eating, wouldn't you agree?